Green Building Insurance

Green buildings, sustainability incentives and energy efficiency strategies have created new opportunities for business. Forward looking businesses are paying attention, getting educated and growing their profits... Is your business aware of the opportunities?

TeroVesalainen

Business Sustainability Strategies

One of the main drivers of corporate risk management is sustainability.

Each year "Corporate Knights", a Toronto based research firm, produces its "Global 100" ranking.

The Global 100 requires an intensive evaluation of publicly available data from over 4,000 corporations each year.

Corporate Knights evaluates firms with at least $2 billion in market value across 14 key measures. Measures include the use of management resources, finances, human resources performance and employee turnover.

Top executives in the Global 100 receive additional bonuses if their companies meet stated sustainability targets. Indeed, meeting sustainability targets is good for investors as well as management.

"The evidence that sustainability is becoming a core consideration for successful businesses around the world grows stronger every day. Sixty-two percent of companies surveyed have a strategy for corporate sustainability, up from just over half in February 2008. Regulatory requirements, brand enhancement and risk management remain key drivers of sustainability. Sustainability is being viewed as a source of innovation—and new growth. Forty-four percent of executives agree sustainability is a source of innovation, and 39 percent see it as a source of new business opportunities."

Green Building Investment Statistics:

According to the US Green Building Council, it is estimated that 40-48% of new commercial construction will be "green", equating to a $120-145 billion insurance opportunity. More than 3.6 billion square feet of building space are LEED-certified.

Compared to the average commercial building, the LEED Gold buildings in the General Services Administration’s portfolio:

Consume 25% less energy

Use 11% less water

Have 19% lower maintenance costs

Enjoy 27% higher occupant satisfaction

LEED and other green building rating systems help designers, architects and contractors with a framework for more durable, efficient buildings. Frameworks for building green are available for commercial, multifamily, retail, hospitality, healthcare and single family homes.

One of the biggest opportunities is in updating the existing building stock. Programs such as CPACE are available in certain states and make it possible to upgrade buildings with LED lighting, solar panels, improved HVAC, building envelope, new windows, fuel cells and energy storage. All of which can help boost net operating income by reducing energy and/or electricity use.

Current market trends suggest that building owners and managers will invest an estimated $960 billion (between now and 2023) on greening their existing built infrastructure. This year, the green share of the largest nonresidential retrofit and renovation activity will more than triple, growing to 25-33% of the activity by value. Firms that completed green building retrofit projects report:

Decrease in operating costs: over one year, 9%; over five years,13%

Expected increase in asset valuation according to building owners: 4%

Sustainability and Types of Insurance

In exchange for a premium, insurance transfers risk from an individual or business to an insurance company.

Types of insurance include the following:

Property Insurance: First party coverage. This means the policy is protecting assets owned by the insured. The amount of coverage is commensurate with value of buildings, equipment, or improvements to a property. Properties valued at over $50 million replacement value may receive special discounts on property insurance coverage by placing their business through a knowledgeable, green insurance broker.

Builder's Risk Insurance: First party coverage. This means the policy is protecting assets owned by the insured but during a construction project. Builders risk insurance is used when a building is under construction and is vacant/unoccupied. Builders risk policies are usually purchased by general contractors or investors in rehab projects. The amount of coverage is commensurate with value of buildings, equipment, or improvements to a property.

General Liability Insurance: Third party coverage. This means the policy is protecting the owner from claims by third parties. An example is a slip and fall or injury that occurs to a visitor while on the premises of a business. The visitor who is injured may file a claim against the business or individual property owner. Having general liability insurance protects the policy owner with limits of coverage in the event of a covered claim. General liability coverage often comes with limits of $1,000,000 per occurrence, $2,000,000 aggregate. It should cover negligence claims, settlements, and legal costs.

Inland Marine Insurance: First party coverage. This is a type of property coverage for equipment and other assets. Inland marine coverage insures against loss or damage to equipment while in transit and/or while not on the property premises. Inland marine coverage might be used is in the transportation of solar panels, fuel cells, energy storage systems or other valuable equipment to and/or from a job site.

Workers' Compensation Insurance: Workers' compensation insurance is required in most of the United States, but local laws vary from state to state. For instance, business owners in Texas are not required to have workers' compensation insurance, but because of its benefits to employers and employees, most employees are covered by Workers' Compensation coverage in Texas. In states where Workers' Compensation insurance is required, an employee who is injured cannot sue his or her employer because of an injury.

Professional Liability Insurance: Third party coverage. This insurance protects business owners, consultants or individuals who provide professional guidance and advice against errors and omissions. An example would be an architect or engineer who provides expert advice on the design of a building, but the building collapses. In this case, the building owner may sue the engineer or architect because they believe they were responsible for the building collapsing. Professional liability insurance is also referred to as "Errors and Omissions" or "E&O" and is often required by boards of directors.

Auto Insurance or Business Auto Insurance: Auto and business auto insurance protects owned and rented vehicles; or personal vehicles used on company business.

Endorsements for LEED and Green Building Certification

Insurance coverage forms vary from carrier to carrier. Special endorsements may be added that cover the liability associated with the unique design, production and use of sustainable strategies and green products.

Green forms and endorsements can include energy storage, renewable energy, water efficiency systems and power generation. Insurance or warranties can be purchased that provide a backstop against promises of green energy production levels, and/or energy conservation measure (ECM) promises. They can also provide coverage for upgrades of green building certification systems including LEED, WELL, Living Building Challenge, Energy Star and Passive House.

The following are types of commercial green and green building insurance:

Upgrade to Green Commercial Fleets

Insurance on Renewable Energy Projects

Insurance for Renewable Energy Property, Equipment and Loss of Use

Insurance for Green Building

Energy Savings Insurance

Insurance for Carbon Capture & Storage/Emission Reduction Projects

Green Building Coverage Against Adverse Publicity

Political Risk Insurance for Carbon Trading

Green Building Insurance - Lack of Awareness:

According to an online survey by Business Insurance, of 315 executives who influence and participate in decision-making in their organizations, 36% said they are not sure whether their commercial property insurance was designed to include green buildings. Thirty-four percent said it is not, and only 30% said their coverage includes green buildings.

Meanwhile, of those who have green building insurance, 32% said they searched themselves for the coverage, and only 28% said a broker advised them to switch to green coverage or add an endorsement for green features.

Of 212 respondents who said their commercial property insurance does not cover their green buildings, or they were unsure about the coverage, 62% were unaware that green insurance or specific endorsements are even available.

Green Insurance Broker

Green buildings have unique exposures to risk. Some aspects of a green building may reduce risk, while others create incremental risks that may be excluded from standard property, general liability and umbrella policies. Coverages for LEED or WELL certified properties should be broad enough to protect the unique aspects of those rating systems.

Download the free Beginner's Guide to Green Building Risk to learn more about how to reduce risk and increase profit in your green buildings. Learn more

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